Educational Articles

Coverage Initiation - TripAdvisor, Inc.

Andrew J. Cueter
| February 11, 2013

Value Line has initiated coverage of TripAdvisor (TRIP) in its flagship product, The Value Line Investment Survey. TripAdvisor is an online travel research company with a platform that features reviews and opinions from its community of travelers about destinations, accommodations, restaurants, and activities throughout the world. TripAdvisor branded webites include tripadvisor.com in the United States and localized versions in 30 other countries. Additionally, the sites include links to the web pages of its customers, including travel advertisers, allowing travelers to seamlessly book their arrangements. In addition to the flagship TripAdvisor brand, the company manages and operates websites under 19 other travel media brands, all of which are connected by the common goal of providing comprehensive travel planning resources.

The company was originally founded in February, 2000 and was later acquired by IAC/InterActiveCorp (IACI) in April, 2004. The following August, IAC spun-off its portfolio of travel brands, including TripAdvisor, into a newly formed company, Expedia, Inc. (EXPE). On December 20, 2011, TripAdvisor was once again spun off. It is now an independent company and began trading on the NASDAQ Global Select Market on December 21, 2011.

TripAdvisor derives substantially all of its revenue from the sale of advertising, primarily through click-based advertising (78%) and, to a lesser extent, display-based advertising (14%). The remainder (8%) is generated through a combination of subscription-based offerings, transactions conducted via its flash sale website, SniqueAway, and other revenue including content licensing. Click-based advertising partners are predominantly online travel agencies and direct suppliers in the hotel, airline, and cruise product categories and the majority of these partners can terminate their contracts at will or on short notice. Display-based advertising clients include the same types of businesses as click-based partners, as well as destination marketing organizations, casinos, resorts and attractions, and advertisers from non-travel categories.

TripAdvisor faces competition for users, advertisers, and travel reviews. Its primary competitors include large search engines, such as Google (GOOG), Microsoft’s (MSFT - Free Microsoft Stock Report) Bing, Yahoo! (YHOO) and Baidu (BIDU), and online travel agencies such as Expedia and Priceline (PCLN), and their respective subsidiaries. Secondary competitors include a wide range of other companies, such as Airbnb, Inc., Ctrip.com International (CTRP), HolidayCheck AG, HomeAway.com (AWAY), Kayak Software Corporation (KYAK), Qunar.com Information Technology Co. Ltd., TravelZoo Inc. (TZOO) and Yelp (YELP), among others. As the market continues to evolve for online travel content and the technology supporting it, including new platforms such as mobile and tablet computing devices, the existing competitive landscape will likely change and new competitors may emerge.

To continue to expand its global reach, the company plans to invest in technology, operations, brand-building, and advertiser and other partner relationships. In doing so, it will rely upon its strengths, namely, its robust community of users, rich user-generated content, technology and innovation, and its global reach.

In addition to being affected by the health of the worldwide travel industry, the company has website-related risks, too. As noted earlier, the company primarily makes money from advertisements. To keep these revenues flowing, TripAdvisor must continue to increase visitors to its websites and to then cost-effectively convert them into repeat users or contributors. This has primarily been accomplished through the content created by users of its websites, particularly such content’s volume, unique nature, and organization.

Additionally, the company relies heavily on Internet search engines to generate traffic to its websites. Thus, it must continue to utilize techniques such as search engine optimization and search engine marketing to improve its placement in relevant search queries. This can sometimes be daunting as search engines frequently update and change the logic that determines the placement and display of results of a user’s search. Moreover, these same search engines could, for competitive or other purposes, alter their search algorithms or results, causing TripAdvisor’s websites to place lower in search query results. This could become a serious threat as an increasing number of companies, such as Google and Baidu, have begun to collect and aggregate travel information and resources.

On the other hand, there are positive industry trends. Recently, an increasing percentage of global travel spending each year has been conducted online through supplier websites and online travel agencies. This trend is likely to continue as online penetration persists, more consumers gain broadband access to the Internet, smartphone and other mobile computing devices continue to proliferate, and as travel grows along with an expanding middle class in certain developing countries like China and India.

Moreover, online travel advertising may be on the rise, as well. According to industry reports, the travel industry represents half of all global e-Commerce transactions. However, only 16% of the approximately $39 billion spent on travel advertising is spent online. This amount could increase as the Internet continues to become even more integral to the travel-planning process.

Subscribers interested in this online travel research company are advised to consult Value Line’s quarterly reports for TripAdvisor, as well as any supplemental reports and relevant articles as important news items arise.

The author did not have positions in any of the companies mentioned at the time of this article’s writing.